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CASE NO.: Appeal (civil)  6371 of 2003

PETITIONER: Shenyang Mastsushita S.Battery Co. Ltd.

RESPONDENT: M/S. Exide Industries Ltd. & Ors.

DATE OF JUDGMENT: 23/02/2005

BENCH: Ruma Pal, Arijit Pasayat & C.K. Thakker

JUDGMENT: J U D G M E N T

RUMA PAL, J.

       The appellant-company carries on the business of           manufacturing lead acid batteries in Shenyang, China.  It is a  subsidiary of Mastsushita S. Electric Industries Corporation, a  multinational company registered in Japan.         The dispute in this appeal is whether the appellant- company operated on Market Economy Principles during the  period 1st January 2000 to 30th September 2000 for the  purposes of the Customs Tariff Act and the Customs Tariff  (Identification, Assessment and Collection of Anti Dumping  Duty on Dumped Articles and for Determination of Injuries)  Rules, 1995. (referred to hereafter as ’the Rules’).                   The principle behind anti dumping laws is to protect the  domestic industry from being adversely affected by import of  goods at export prices which are below the normal value of the  goods in the domestic market of the exporter. Anti dumping  duty is leviable under  Section 9A of the Customs Tariff Act,  1975 (referred to as ’the Act’)  read with the Rules which are  framed under Section 9A (6). The duty is calculated on the  margin of dumping which is the difference between the export  price and the normal value.  The phrase " ’normal value’ in relation to an article has  been defined in clause (c ) to the Explanation to Section 9A (1)  as meaning: - (i)     "the comparable price, in the ordinary  course of trade, for the like article when  meant for consumption in the exporting  country or territory as determined in  accordance with the rules made under  sub-section (6); or  (ii)    when there are no sales of the like  article in the ordinary course of trade in  the domestic market of the exporting  country or territory, or when because of  the particular market situation or low  volume of the sales in the domestic  market of  the exporting country or  territory, such sales do not permit a  proper comparison, the normal value  shall be either-

(a)   comparable representative price of the  like article when exported from the  exporting country or (territory to) an

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appropriate third country as  determined in accordance with the  rules made under sub-section (6); or

(b)  the cost of production of the said        article   in the country of origin along  with reasonable addition for  administrative, selling and general  costs, and for profits, as determined in  accordance with the rules made under  sub-section(6).

The Rules provide inter alia for the assessment of the anti  dumping duty by the Designated Authority.  The principles to be  followed by the Designated Authority for determination of  normal value, export price and margin of dumping have been  set out in Annexure I to the Rules. Initially paragraphs 1 to 6 of Annexure I provided for the  principles which relate generally to the determination of normal  value for all countries on the assumption that they operate on  market economy principles.  A distinction was drawn in 1999 for  the first time between market economies and non-market  economies. Annexure I was amended by two notifications  referred to by the Tribunal which were dated  15.7.1999 and  31.5.2001.  The first notification introduced paragraph 7 after  paragraph 6 in Annexure-I: "In case of imports from non-market  economy countries, normal value shall  be determined on the basis of the price  or constructed value in a market  economy third country, or the price from  such a third country to other countries,  including India, or where it is not  possible, on any other reasonable basis,  including the price actually paid or  payable in India for the like product, duly  adjusted if necessary, to include a  reasonable profit margin. An appropriate  market economy third country shall be  selected by the designated authority in a  reasonable manner and due account  shall be taken of any reliable information  made available at the time of the  selection.  Account shall also be taken  within time limits; where appropriate, of  the investigation if any made in similar  matter in respect of any other market  economy third country.  The parties to  the investigation shall be informed  without unreasonable delay the  aforesaid selection of the market  economy third country and shall be  given a reasonable period of time to  offer their comments."  

By this notification a separate procedure was prescribed  for determining the normal value of non-market economies.  Paragraph 7 to Annexure I now provides for the determination  of the normal value with reference to the price paid by a third  country with a market economy to India of a like product.  If  such a third country is selected, the Designated Authority has to  inform the exporters of the selection and grant them a  reasonable period to offer their comments. It is only if this  procedure is not possible that the Designated Authority can act  on any other ’reasonable basis’.  In other words, the

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Designated Authority must exhaust the first method before  moving to the alternative procedure.

The second notification dated 31.5.2001 inserted a further  paragraph after paragraph 7 as paragraph 8 in Annexure-I to  the following effect:- " The term "non market economy  country" subject to the Note to this  paragraph means every country listed in  that note and includes any country  which the designated authority  determines and which does not operate  on market principles of cost of pricing  structures, so that sales of merchandise  in such country do not reflect the fair  value of the merchandise.  While  making such determination, the  designated authority shall consider as to  whether:-

(i)     the decisions of concerned firms in such  country regarding prices, costs and  inputs, including raw materials, cost of  technology and labour, output, sales  and investment, are made in response  to market signals reflecting supply and  demand and without significant State  interference in this regard, and whether  costs of major inputs substantially reflect  market values;

(ii)    the production costs and financial  situation of such firms are subject to  significant distortions carried over from  the former non-market economy system,  in particular in relation to depreciation of  assets, other writ-offs, barter trade and  payment via compensation of debts;

(iii)   such firms are subject to bankruptcy and  property laws which guarantee legal  certainty and stability for the operation  of the firms, and

(iv)    the exchange rate inversions are carried  out at the market rate:

   Provided that in view of the changing  economic conditions in Russia and in the  Peoples’ Republic of China, where it is  shown on the basis of sufficient evidence  in writing on the factors specified in this  paragraph that market conditions prevail  for one or more such firms are subject to  anti-dumping investigations, the  designated authority may apply the  principles set out in paragraphs 1 to 6  instead of the principles set out in this  paragraph.

Note:-  For the purposes of this  paragraph, the list of non market  economy countries is Albania, Armenia,  Azerbaijan, Belarus, Peoples’ Republic of

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China, Georgia, Kazakstan, North Korea,  Kyrghyzstan, Moldova, Mongolia, Russia,  Tajikistan, Turkmenistan, Ukraine,  Uzbekistan and Vietnam.  Any country  among them seeking to establish that it is  a market economy country as per criteria  enunciated in this paragraph, may provide  all necessary information which shall be  taken due account by the designated  authority".

China was expressly notified as a non market economy  by this Notification. However in recognition of the fact that the  economic conditions in China and Russia were rapidly  changing, paragraph 8 as introduced by the second notification  allows  particular units of these two countries to show that the  four conditions mentioned in the paragraph were satisfied in  respect of that unit. If that is done the Designated Authority  would then apply the principles enunciated in paragraphs 1 to 6  of Annexure-I which as we have said are applicable to market  economy countries.  The respondent Nos.1 and 2 representing the domestic  industry which either manufactures or imports lead acid  batteries, filed a petition for initiation of anti dumping  investigation concerning import into India of lead acid batteries  from Japan, Republic of Korea, Peoples’ Republic of China and  Bangladesh under Rule 5(1) of the Rules. On 12th January,  2001, an initiation notification was issued by the Designated  Authority of the Directorate General of Anti-dumping and Allied  Duties "being satisfied,  prima facie  that the normal value of the  lead acid batteries in the subject countries was significantly  higher than net export price indicating that the goods were  being dumped by the exporters from the subject countries" and  that as a result of the allegedly dumped imports, domestic   industry had suffered injury.  The period for the purposes of the  investigation as indicated in the initiation notice was                 1st January, 2000 to 30th September, 2000.  The Designated  Authority sent  a questionnaire to 31 companies situated in the  four named countries.  Of the 11 companies located in China,  the appellant and two others responded to the initiation notice.   The other companies did not participate in the investigation. On 21st March, 2001, the Designated Authority issued its  preliminary findings.  As far as the appellant was concerned, it  was stated that the appellant had given no information on the  type/model of batteries being manufactured  by them which  were not being exported to India.  It was noted that on the basis  of available evidence, the profitability/loss from different types  of batteries varied significantly, which, according to the  Designated Authority,  indicated the "possibility of existence of  cross subsidization among various models significantly  affecting pricing policy of the company regarding the different  models".  It was noted that the information given by the  appellant was "selective, incomplete and hence not  acceptable".  In the circumstances, the Designated Authority  decided  not to take into account the information submitted inter  alia by the appellant on normal value and export price of the  lead batteries in China for the purpose of its preliminary findings  but to use information given by the domestic industry on the  constructed cost of production as the best information available  for the purpose of assessing such normal value and to calculate  the dumping margin.   On the further prima facie finding that   the domestic industry had suffered material injury and was  facing further threat of material injury on account of the dumped  imports of the subject goods inter alia, from China, the  Designated Authority considered it necessary to impose anti

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dumping duty provisionally subject to a final determination on  all imports of lead acid batteries from China, Korea and Japan  in order to remove the injury to the domestic industry.  The  rates of anti-dumping duty were specified in a chart appended  to the order.  The Designated Authority, however, invited  comments on these findings from "all interested parties for the  purposes of being considered in the final finding".   It is the appellant’s case that pursuant to this preliminary  finding the appellant paid the anti dumping duty at the rate  specified after the same was notified by the Central  Government.   The appellant also submitted further material to  the Designated Authority. In the course of the investigation two officers of the   Directorate General of Anti Dumping of Allied Duties visited the  appellant’s manufacturing facilities in China.  A disclosure  statement was furnished by the authority to all the parties.  After  investigation and verification, the Designated Authority noted  that the appellant had furnished the required information which  had been verified.   It was held that anti dumping duty was not  applicable to the appellant as the dumping margin was  negative.  A notification was issued to this effect by the Central  Government. The respondent No.1 challenged the final order of the  Designated Authority dated 7th December, 2001 before the  Customs Excise and Gold (Control Appellate Tribunal)  (CEGAT).  One of the points raised by the respondent Nos.  1and 2 before the Tribunal was that the Peoples’ Republic of  China was a non-market economy  and, therefore, the normal  value should be determined on the basis of the amendments  effected to the Rules relating to non-market economies. During the pendency of the respondent’s appeal before  the Tribunal on 25th November, 2002, an order was passed by  the Designated Authority which reads as follows.   "\005As per the Appellants the designated  authority failed to proceed as per the  Rules\005.

The Ld. Counsel appearing on behalf of  Chinese exporters would submit that  they are entitled to an opportunity to  produce data to rebut any presumption  against the country as non market  economy.  They further submit that the  data made available to designated  authority would be sufficient to rebut any  presumption against the country or  individual exporter as one following one  marketing  conditions.  They would  further contend that inspite of their  providing such data, the designated  authority had failed to consider the  same for which they should not be  visited with adverse consequences.

After hearing both the sides, we feel in  the interest of justice certain directions  are to be issued to the designated  authority before we come to final  decision in the matter. We therefore,  direct the designated authority to  examine the data made available by the  Chinese exporter & file a statement  before this Tribunal as to have satisfied  the tests under Rule 8 as amended by  notification 31.5.2001. Since, the matter

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has been hanging fire for some  time &  the appellants are complaining that they  are facing irreparable injury by  continuing dumping by Chinese  exporter, we further direct that the report  shall be filed by designated authority on  or before 2.12.2002.  The matter to  come up for hearing on 3.12.2002."

The Designated Authority submitted a report on the  available data  on 2nd December, 2002 in compliance with the  order of the Tribunal reiterating the stand taken by it earlier and  stating that the appellant had complied with all the criteria set  out in paragraph 8 in Annexure-1 to the Rules. In other words  the conclusion of the Designated Authority was that the  appellant operated on market economy principles therefore  market economy principles contained in paragraphs 1 to 6  would apply.   The final finding submitted earlier was therefore   supported and reaffirmed.     On  3rd June, 2003 the Tribunal allowed the appeals filed  by the Respondent No.1 accepting its submission and holding  that the Designated Authority had failed to conduct the normal  value investigation in accordance with the Rules applicable to  non-market economy units. It was said that the applicable  notifications for the determination of normal value and in  particular notification dated 31.5.2001 provided that even in non  market economy countries, market driven units could prove that  they were operating according to market principles.   It was  noted that pursuant to the interim order of the Tribunal, the  Designated Authority had examined the matter from the  perspective of requirements under the amended provisions for  non market economy countries and had placed a statement  before the Tribunal.  But the Tribunal rejected the report of the  Designated Authority on the ground that  it was incumbent on  the appellant and the other two units excluded from anti  dumping duty to establish that they are run according to market  principles  and that no verification had been carried out at the  premises of the exporters to satisfy itself that the data summary  filed in the questionnaire responses correctly reflected the  transaction  as per the  books of  account of the individual units  and that the accounts satisfied Generally Accepted Accounting  Standards (GAAS) of the country. The exclusion of the  appellant from the purview of anti-dumping duty, had, according  to the Tribunal been done without the necessary scrutiny and,  therefore, it was unsustainable.  The Tribunal therefore came to  the conclusion that the appellant and the other two units had to  be treated in the same manner as other manufacturers located  in the Peoples Republic of China.  In conformity with the  provisions of Section 9-A(1)( c) of the Customs Tariff Act.  The  Tribunal, however, made it clear that if the units (including the  appellant) were convinced about the merits of their claim that  they are run according to market economy principles they could  seek a review of their cases before the Designated Authority.   In the circumstances the exemption from anti dumping duty  granted to the three Chinese exporters including the appellants  by the Designated Authority was set aside and the three units  including the appellant were subjected to anti dumping duty.                 There is no dispute that the first notification was operative  before the initiation notice was issued.  The second notification  was issued during the investigation proceedings. There is also no dispute that the Designated Authority  followed paragraphs 1 to 6 of Annexure I not only in connection  with the investigation but also with regard to the final finding.  The appellant’s grievance is that the Designated Authority not  having followed the procedure prescribed either under

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paragraph 7 or paragraph 8 its case could not subsequently be  considered according to those paragraphs as neither any notice  was given by the Designated Authority that the appellant would  be treated according to non market economy principles nor was  any specific issue raised in this regard.  This is admitted in the  counter affidavit filed on behalf of the respondent No.1 where it  is said that the respondent No.1 did not raise the issue of non  market economy in its written submissions because the  domestic industry was not aggrieved by the preliminary finding  which imposed anti-dumping duties on exports from China.   However, it is stated that the respondent No.1 had mentioned in  its petition and rejoinder that China was a non market economy.  In fact it was the respondent No. 1’s stand in its appeal from the  final finding of the Designated Authority that the Designated  Authority had failed to apply the principles applicable to non- market economy countries to the Chinese exporters including  the appellant as introduced by the two notifications.   Learned counsel appearing on behalf of the respondent  No. 1 submitted strenuously that China was in fact a non- market economy and there was no question of applying  paragraph 8 as introduced by the second notification on   31.5.2001 as the period of investigation was prior to the  issuance of that notification. It is submitted that since non-  market economy had to be decided on a country wise basis,  individual concerns could not be separately  represented.  According to the Respondent No. 1  in  the decision of this  Court  Designated Authority Vs. Haldar Topsoe A/S (2000) 6  SCC 626 it has been held that the normal value of a non- market economy is  country specific. Therefore a uniform rate  was to be taken for all Chinese exporters and it was not open to  an individual unit to claim that it was run according to market  economy principles. It is submitted that the preliminary finding  of the Designated Authority was in the circumstances correct.  According to the respondent No.1, the verification conducted by  the Designated Authority at the appellant’s unit in China was  questionable.  It is not necessary to decide whether China was to be  treated as a non-market economy during the period of  investigation or whether the normal value should be decided on  a country-wise basis, as we are not prepared to allow the   respondent No.1 to take up what is clearly an inconsistent  stand.  Its submission before the Tribunal as recorded in the  Tribunal’s order was that the final finding of the Designated  Authority could not be sustained because it was in  clear  violation of the Rules as amended by the notifications dated  15th July, 1999 and   31st May, 2001. The stand has been  reiterated before this Court in the counter affidavit filed by the  respondent No.1 where it is categorically averred that the  notification dated 31st May, 2001 had been violated by the  Designated Authority and that the Tribunal had rightly come to  the conclusion that  the Designated Authority had failed to  determine the normal value of the Appellants exports in  accordance with the Rules applicable to non-market economy  units as provided inter alia in the notification dated 31st May,  2001.  Indeed that was the basis on which the respondent  No.1’s appeal had been allowed by the Tribunal.  If the Tribunal  was correct, then, even according to the Tribunal, under the  second notification dated 31st May, 2001, market driven units in  non-market economy countries could prove that they were  operating according to market principles.  This exception has  been provided to the rule of uniform normal value for all  exporters in non-market economy countries. The decision in  Haldor Topsoe  (supra) is inapplicable as it was not rendered  with reference to paragraphs 7 or 8 of Annexure I to the Rules. The only ground on which the Tribunal upset the final

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finding of the Designated Authority that the appellant operated  according to market economy principles was that the  Designated Authority had not physically verified the information  given by the appellant.  That was factually erroneous.  It was  the clear case of the appellant that it had already produced  sufficient material before the Designated Authority to justify  a  finding that the appellant was operating according to market  conditions. It must be remembered that the Designated  Authority had already visited the manufacturing units of the  appellant in China and verified the information produced by the  appellant.  The Tribunal had only directed the Designated  Authority to consider the data already made available by the  appellant in the light of paragraphs 7 and 8 of Annexure I. That  is exactly what the Designated Authority did. Since the  Designated Authority had verified the data prior to submitting its  final finding, there was no question of the Designated Authority  re-verifying the information given by the appellant.  That this  could not have been even within the contemplation of the  Tribunal is clear from the fact that the Tribunal had granted only  seven days time within which the Designated Authority was to  submit its report. The respondent No.1’s contention that the  verification was improperly done cannot be gone into at this  stage. It is a question of fact, which should have been clearly  raised and proved.  In fact it does not appear that such a  grievance was made before the Tribunal by the respondent  No.1.      Having found that the Designated Authority had  violated the notifications, the Tribunal chose to rectify the  situation by issuing the order dated 25th November, 2002 which  we have quoted earlier.  Neither of the parties have impugned  that order by which the Designated Authority was directed to  comply with the notifications.  It was then not open to the  Tribunal to proceed on the basis that there was a violation of  the notifications.   The Tribunal did not address itself to the question  whether there was sufficient evidence to support the  Designated Authority’s finding that there was no dumping by  the appellant.  It held that the appellant was liable to pay  dumping duty without considering the injury if any to the  domestic industry and the causal connection between the  alleged dumping and the injury.  While the matter was pending before this Court, on 26th  October, 2004 a mid term review was held by the Designated  Authority.  The Designated Authority determined the normal  value of the export from China as per the Rules relating to the  non market economy contained in paragraph 7 of Annexure-1  to the Rules, but found that in fact there was a negative  dumping margin as far as the appellant was concerned and that  therefore it was not liable to pay anti dumping duty.  This mid  term review which was carried on 26th October, 2004 is not the  subject matter of challenge in this appeal, but it has been  contended by the Respondent No.1 that the appeal has  become infructuous. We think not.  For one there may be a question of refund  of the anti dumping duty paid by the appellant pursuant to the  preliminary notification. For another we are of the firm view for  the reasons stated earlier that the decision of the Tribunal  cannot be allowed to stand. The only question that remains is  whether the matter should be remanded back to the Tribunal  after setting aside the order.  

In our opinion no purpose would be served in remanding  the matter back to the Tribunal after setting aside the order at  this stage.  Admittedly the Designated Authority had initiated,  conducted and concluded the proceedings under Rules 1 to 6.   

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If non market economy principles have now to be applied then  the entire process would have to start from scratch. Indeed  whether China should have been treated as a non-market  economy for the period in question is itself in dispute. Under  Rule 17, the Designated Authority is required to submit its final  finding within one year from the date of initiation of the notice or  at the most by another six months if the Central Government is  satisfied that  there  are  special  circumstances.   The  period   has  long since expired.

The appeal is accordingly allowed and the decision of the  Tribunal is set aside without any order as to costs.